Khandwala Securities Ltd

ECONOMY OVERVIEW

After almost two years of end of the great recession, it remains unclear what thefinancial crisis has done to GDP growth of advanced economies. However, emerging marketscontinue to show resilient growth. The year 2010-11 has been a year of steady performancefor the Indian Economy. The gross domestic product for the financial year 2010-11 isexpected to grow by 8.6%, up from 7.2% in the previous year.

This sustained growth performance has attributed India as one of the most promisingeconomies today. A recent report by Citi goes on to name India as a global growthgenerator in the years to come. The report comments on the sustainability of this highgrowth performance, stating that India has generations of catch-up growth yet to bewitnessed. As per recent World Bank estimates, combined GDP in developing countries willgrow by 6.0% and 6.1% in CY11 and CY12 respectively, after a 7.0% rise in CY10. Accordingto the IMF, world GDP (measured at PPP US dollars) amounted to $73trn in 2010. Accordingto their forecasts, world GDP will more than double to $180 Tn by 2030, measured incomparable units, i.e. constant 2010 PPP US dollars, and then more than double again to$378 Tn by 2050. The economic center of gravity has already started shifting eastwardswhere India & China are expected to be its focal point by 2050.

The announcement of Union Budget 2012 also allayed concerns over a burgeoning fiscaldeficit. The policy may not have been the best for the corporate players, but sure tookcare of issues of common man and paved way towards long term stability.

INDIAN EQUITY MARKET

The Indian capital markets have performed better than most others during this financialyear. With recessionary concerns left behind and positive economic data, investors bothforeign and domestic joined the Indian growth story.

However, the major negative against the markets this year have been political &corporate governance issues and inflation. The outburst of political and corporate scamsonly exacerbated the problem. Both in May 2010 and January 2011, indices were pulled downdue to these factors. Till March 2011, there had been no conclusive action on 2G andCommon Wealth Games scams. Rising crude oil prices, a major component of inflationindices, kept inflation higher and RBI on its toes. However, strong performance from IndiaInc. and economic data suggesting healthy growth raised investor confidence in November2010.

The penetration of asset classes like bonds and currencies remains low. However, asIndian investors become more sophisticated, they are bound to start branching out intovarious asset classes and this will boost the markets.

Also, markets will further develop with greater efficiency owing to the forward-lookingpolicies of the regulators and the government. The projected growth of the Indian economywith the resultant growth in the capital' markets, compels us to identify the enablingfactors and to work towards putting them in place, at the earliest.

The Primary Market

India Inc raised Rs 46,627 crore through the public equity offerings in the financialyear 2010-11, 3.7% higher than Rs 47,302 crore mopped up in the last fiscal. The publicofferings dominated by the state-run firms, which raised Rs 27,537 crore or 56 per cent ofthe total amount.

The figure for the year could have been higher but due to the continuing volatility inthe secondary market and poor post-IPO performance of some companies in the early part ofthe fiscal, fund-raising plans failed to breach the record level of Rs 52,219 crore raisedin 2007-08. Nevertheless, the financial year's figure is the second-highest ever and isalmost double of each of the preceding years of 2004-05,2005-06 and 200607.

The last time when the PSUs had raised the biggest amount was in the previous year - Rs30,942 crore. This year they raised Rs 27,537 crore, of which Rs 22,763 crore was throughdivestments and Rs 9,780 crore through fresh capital. A total of seven PSU companiesentered the market in FY11, led by the country's largest-ever initial public offering(IPO) of Coal India at Rs 15,199 crore, which accounted for 33 per cent of the year'smobilization. The other IPOs were from MOIL, SJVN, and Punjab and Sind Bank. The restthree were follow-on public offers - Power Grid, Shipping Corporation and Engineers India.

The Secondary Market

Encouraged by the strong growth performance exhibited by the economy, the equitymarkets saw a surge by the end of 2H 2010-11. With the debt worries in the Euro zone andslowly recuperating US economy, investors increased their focus towards Indian equities.The investment by foreign institutions for the year was around US$ 24.47 Bn, maintaininglast year's level and even growing. Though the YoY performance may not seem attractive,markets were very volatile and gave huge returns for value-investors. The year startedweak with investors getting cautious of political concerns and rising crude oil prices.They rebounded from its trough in May 2010 to an all time high in November 2010. However,they witnessed a downswing again in the new calendar year, initially driven by politicalconcerns and later by inflationary.

The Benchmark BSE SENSEX, which had dipped to 15,960 in May 2010, rebounded to 21108 inNovember 2010. The index closed at 19445.22 as on March 31 2011; an increase of 9.91% inFY11 and increase of 21.84% its trough. As a result, valuations that are beginning toemerge as a key concern in India, coupled with the ongoing developments in the Euro zone,have the potential to cause a correction.

The key benchmark indices, BSE Sensex and NSE Nifty both ended with approximately 11%growth over the year. Even, the shares of small and mid-cap companies outperformed the keyindices during the same period due to expectation of higher returns and revival ininvestor confidence. Flls invested more than $24.47 billion in equities.

During the financial year 2010-11 there was a fall in the aggregate secondary marketturnover both on NSE and BSE. The average daily turnover on NSE and BSE decreased by 16%and 30% respectively to Rs 11,623 crore and Rs 3,293 crore.

Over the financial year, Central Government and RBI took some firm decisions to controla stubborn inflation. The government also withdrew certain stimulus measures. RBI startedexiting from its accommodative stance beginning April 2010. During this financial year,RBI has increased REPO & reverse REPO rate by 175 bps and 225 bps respectively.

After mid-March 2011, the Indian currency appreciated to trade in the Rs. 44-45 perdollar range. Earlier, it was trading in the range of Rs. 45-46 per dollar range. Reportsattribute the appreciation more to the weakening the dollar in the international marketsand to the improvement in the capital inflows in to the country. The dollar is said tohave depreciated against Euro following signals of rate hikes in the Euro zone. The rupeedid depreciate and breached Rs. 47.5 per dollar mark in May, but over the year just showeda gain of mere 0.7%.

EMERGING MARKETS

Emerging-market equity markets attracted more money this year, putting them on coursefor a record year as Europe's debt worries diverted cash away from developed-market.Although 2010 produced mostly positive returns, a few markets such as Japan and a numberof heavily-indebted European markets closed in loss-making territory. In the wake of theseconditions, emerging markets proved better investment destinations.

Notwithstanding a period of underperformance during the fourth quarter, the MSCIEmerging Markets Index rose by 11% for the 2010-11, enough earlier in the year tooutperform the MSCI World Index by a wide margin for the year as a whole. The followingchart gives a picture of the index over FY 2010-11.

DEBT MARKET:

The corporate debt markets which witnessed a lackluster FY09 following the globalcredit crisis and liquidity crunch, failed to improve the levels of activity. Primarily,this happened because most corporate houses preferred to follow the equity route for theirinvestment plans. Traditionally, the debt penetration in India has been low compared tothe developed countries. In addition, the debt markets in India are by simple, plainvanilla loans. Do not seem to view the debt markets as a credible alternative to equitycapital markets, yet. Moreover, the Indian market: is crowded by Government bonds, whichfind buyers in many Commercial Banks in view of the high reserve requirements; in thecountry. The corporate debt markets, therefore, continue to be shallow in spite of havinggreat potential.

However, the advent of Interest Rates Futures and the, likely introduction of corporatebonds reputability and credit default swaps coupled with other reforms is expected to turnthe debt markets around. This would help in making bonds a cheaper and more efficientalterative for raising resources compared to the traditional commercial loans from banks.We are hopeful that the government and the regulators will bring out the necessary reformsin order to make the debt market a vibrant one.

Performance

Indian fixed income market witnessed subdued activity from the investors' fraternityduring the financial year 201011. Factors such as high WPI inflation, rising interestrates, extreme tight liquidity in the banking system, high fiscal deficit, governmentborrowing and spending and geo political issues influenced and resulted in inching up ofthe yields on debt securities.

Government securities market observed yields hardened over the course of the financialyear and the 10 yr benchmark security reached a high of 8.23% before closing the year at7.98% (vs last year's year end yield of 7.85%).

The Reserve bank of India (RBI) increased policy rates -Repo and Reverse Repo rates by175 and 200 basis points respectively during the FY 2010-11.

The net borrowing for the Government of India announced for financial year was Rs.3,45,000 crore. The inflation for the year was very high with an average of 9.19%.

Liquidity in the banking system was extremely tight most of the year and banks wereborrowing a net average of Rs. 46,106 crore through LAF window from RBI on a daily basis.

Interest rates at short end also inched up to the level of 10 to 11%. Due to theextreme liquidity crunch, banks and corporates mopped up money from secondary market wherethey issued CDs and CPs with higher interest rates.

Outlook

We expect FY2012 to be another volatile year in fixed income markets. There are stillgood returns to be achieved, but investors should expect softer returns than thoseexperienced in 2009 and 2010.

We believe investment grade corporate bonds offer the best mix of risk and reward fornext year and it's likely that we see mid-single digit returns from this asset class. Inthe government bond market, I expect a small uplift in yields in FY12 as markets move toanticipate higher inflation. However any rise in yields should be relatively contained asgrowth stays low.

Domestic inflation is expected to remain at elevated levels in the 1HFY12. While baseeffect for primary (food) articles is positive, that for manufacturing sector, whichconstitute 64% of the WPI basket, is unfavorable. Recently, commodities have startedshowing some weakness however, the uncertainty over crude oil prices remain a concern.Further, domestic fuel price hike after the state elections in the coming month seemsinevitable. Led by higher than expected inflationary pressures, RBI is likely to maintaina hawkish stance & continue with its rate tightening cycle. We expect additional50-75bps policy rate hikes in FY12 including the hike in the meeting on 2nd May 2011. Weexpect liquidity deficit to remain around current levels.

We expect the 10-Year G-Sec benchmark to trade in the range 8.15%-8.35% in thenear-term. 10-Year AAA Corporate bond spreads are likely to remain at the current levelsof -100

bps and 1-Year CD rates are expected to ease by -100 bps. Market will take further cuefrom Annual Monetary Policy Review scheduled on May 2, 2011.

Fll & MF Activity in Equity Markets:

The net Fll inflows in the financial year 2010-11 has touched US $24.47 billion oraround Rs 110 lakh crore. During the financial year 2010-11 there was a net outflow ofmutual funds which stood at Rs 19,180 crore.

AN OVERVIEW OF KSL:

As a corporate house, the overall operations of Khandwala Securities Limited includeInvestment Banking, Corporate Advisory Services, Institutional Broking, Private ClientBroking and Investment Advisory services.

The salient features of the Company's performance: -Total Revenues of Rs. 893.76 LakhsNet Profit/Loss of Rs. 43.11 Lakhs Earning Per Share (EPS) of Rs. 0.36 Segment Highlights- FY11 over FY10:

Empanelment during the Year

Your Company constantly endeavors to increase its market share with large Banks,financial institutions, and insurance companies on a sustained basis in order to increasethe depth and width of its market offerings. With continuous effort backed by superiorExecution skills and Research support, your Company is able to add significant value toits esteemed clients on a long term basis.

Your Company shall focus more towards high end Research with further enhancement of itsteam of cutting-edge research specialists during the year and will make higher allocationof funds towards building such talents on a continuous basis, as has been our objectivetill now.

Broking Business:

The Brokerage services of your Company include equity and debt broking and is supportedby a strong research platform.

Income received for brokerage services, had accounted for approximately 42.84% of ourtotal revenues at Rs. 382.89 Lacs for the year ended March 31, 2011.

Your Company also trades in the currency derivatives segment of National StockExchange.

Capital Market Operations:

The equity capital markets team focuses on structuring and executing diverse equitycapital raising transactions in the public and private markets for our clients. Productsin this segment include IPOs, follow-on offerings, rights offerings, private placement,ADR offerings, GDR offerings, QIP transactions and convertible offerings, etc. for bothlisted and unlisted entities.

As an Investment Banking firm, it has always been our endeavor to structure and puttogether transaction structures that build long term, sustainable value for both theborrower and lender of funds in the equity markets. This approach, though having provedits mettle during the stages of market tightness, has been somewhat considered as aweakness by industry participants, resulting in us not being able to successfully convinceloomberg on its benefits. This has led to situations wherein KSL has had to eitherwithdraw from certain mandates or had to face resistance from Indian Corporates inawarding their fund raising mandates to us from the secondary markets. This is despite themanagement of these corporate houses acknowledging the deep knowledge and understanding ofthe micro and macro economy factors including the future growth prospects in specificindustry, and the sustainable long term valuation parameters.

We always believe that in order for market to value and reward its participants, it isimportant for both the Promoter Groups and the Merchant Bankers to design appropriate andsustainable valuation models such that it remains consistent with the overall corporateperformance and at the same point in time is able to ride both the good and the bad times.

Investment Baking and Advisory Group is putting their best endeavors on reviving someof the lost or delayed transactions, and are confident that in improved market sentimentsame can be executed efficiently.

Institutional Equities:

The brokerage industry continues to be highly fragmented in India. The market share oftop five brokers on the NSE in cash segment is under 15% in 2010-11 even though it hasincreased from 10% in the year 2002-03. Similarly the market share of the top 10 brokerson the NSE in cash segment stands at about 24% in 2010-11 up from approximately 16% in200203. These figures indicate a trend of long-term consolidation in a highly fragmentedsecurities brokerage industry.

Equity and derivatives brokerage business of the Company contributed 42.84% of theconsolidated revenue during this financial year. The Company's revenue of Rs. 893.76 Lacsfor the year showed an increase of 9.88% over the previous year corresponding to acomparable increase in volume. However it is encouraging to note that we marginallyincreased our market share. The number of clients who traded and the number oftransactions were also good.

The institutional equities business comprises institutional equity sales, sales-tradingand research. We differentiate ourselves based on our cutting-edge research focus, whichaids our execution capabilities across our sales and trading platforms. We provide equityand derivatives sales and trading services to a large and diversified base ofinstitutional investors, including Flls and domestic institutional investors. As atpresent, we have over 35 institutional investors actively transacting with us on acontinuous basis. The category wise contribution from the Institutional Dealing Desk toour revenues has been mentioned in the table below which shows a decrease of 52.22% duringthe Fiscal Year 2010-11 over previous financial year 2009-10.

Private Client Broking:

Our private client broking services are targeted at High Net Worth Individuals (HNIs)who actively invest and trade in equity markets and seek priority service with Bloombergresearch and advisory support. Our approach is to provide advisory-based brokerageservices with a strong emphasis on research, and to offer our clients value-added servicesusually reserved for institutional clients.

KSL with its concentrated efforts in equity broking business, and as future strategy tobuild high volumes and revenues could successfully add nearly 280 new accounts during theperiod from 1st April 2010 to 26th May 2011.

Your Company is confident that with its high degree of execution skills and servicessupport, besides with its high end research will grow to new heights in its revenues inthe coming years.

Portfolio Management Services:

The Portfolio Management Segment is bound to grow and offer immense business potentialfor financial advisory services. The NRI community is the key market segment. SuccessfulNRI business owners and professionals are of great interest to Portfolio managementinstitutions. KSL has identified this rapidly growing segments' need for specific productsand services and has created practice models and advisory teams that specialize inservicing NRIs. Our service offerings include providing HNIs with investment advisory,planning and asset deployment advise, asset allocation and the distribution of a widerange of products. Our primary focus is on understanding each client's financial profile,including tolerance for risk, capital growth expectations, current financial position andincome requirements in order to create comprehensive and tailored investment strategies.Our Portfolio Management services have increased our clients' access to and use of ourfinancial products and services.

Your Company is confident to gamer much larger assets under management under the PMSdivision compared to last year and could be able to clearly demonstrate its core expertiseto maximize the value under PMS, even under adverse market situation.

Merger and Acquisition Advisory:

Our merger and acquisition team provides clients strategic and financial advice aidingthem in achieving their objectives through mergers, acquisitions, takeovers, tenderoffers, divestments, spin offs, restructuring, Joint Ventures and strategic alliances anddemergers.

Our services encompass strategy formulation, identification of buyer or targets,valuation, negotiation and bidding, capital structuring, transaction structuring andexecution.

Private Equity:

The Qualified Institutional Placement (QIP) market was also active during the F.Y2010-2011 with 41 companies raising approximately Rs. 19,722 crore ($ 4.3 billion)

Private Equity investments in India are still dominated by funds investing out of theirglobal funds. Given the global risk aversion, the allocations from these funds may slip.

Corporate Advisory Business:

The Corporate advisory business of the Company, includes equity capital marketstransaction execution, mergers and acquisitions advisory and capital raising advisory andtransaction execution relating to structured finance, real estate and infrastructure.During the period the total Income from advisory services was Rs. 1.51 crores.

Market Research:

Our institutional equities business is supported by an experienced and dedicated teamof analysts in fundamental, technical and alternative investment research. Our researchinitiatives are driven by committed professionals, management graduates, CharteredAccountants and Engineers having combined experience of several decades.

Besides conventional tools, our alternative research Bloomberg proprietary toolsdeveloped in-house, including quantitative analytical techniques and models to identifyshort and medium-term investment opportunities. Our research team maintains an updateddatabase on, and tracks regularly, various factors impacting economy, industry andcompanies. The trends are analyzed using data both on macro and micro level.

Various research products such as Market Today, Market Weekly, Market Technicals, IndiaStrategy, Model Portfolio, Eco Update, InSight, Company/Sector reports/updates and othersare sent to esteemed clients on a regular basis. These reports are supplemented byday-to-day market information by way cf market alerts and impact analysis. Strength of ourresearch capability lies in our ability to identify emerging investment themes and spotwinners ahead of time.

Our research reports, widely acknowledged by domestic and international print andelectronic media, are rated among the leading domestic brokerage houses and have earnedroyalties from international data services providers in foreign exchange.

Our Intelligent Research Reports are accessible on globally acknowledged and marqueewebsites such as Bloomberg, net, thomsonreuters.com, 1call.com, moneycontrol.com,securities.com, valuenotes.com, capitaliq.com.

Our research reports are highly recognized by international investors communityincluding leading Foreign Institutional Investors, global central banks, multi-lateraldevelopment agencies and independent multi-strategy funds. Some of the research reports,apart from being widely acclaimed, have been ranked among the best by internationalfinancial information providers such as Thomson-Reuters and Bloomberg.

Internal Control System:

As remarked by the auditors in their report, the Company has an internal control systemcommensurate with its requirements and the size of the business. As a step further, yourCompany has already taken steps to document its systems and processes. The company has putin place adequate internal control measures in all risk areas. Your Company has initiateda process to upgrade the existing system. The Company is continuously investing indeveloping one of the best trading front end systems, enabling users to place orders andreceive confirmations at lightning speed.

Risk concerns and Risk Management:

The Risk Management Function is overseen by the Audit Committee. Risk ManagementPolicies are designed after discussion with various constituents and experts. In abusiness where prices and realities change every instant, it is imperative for KSL tooperate within a broadly de-risked business model that protects stakeholder interests onthe one hand and facilitates growth on the other.

Therefore, the concept of real-time risk mitigation management is integrated within theCompany's existing business strategy. It is integrated into the Company's strategic andoperational decision making process; it is ingrained in the organizational mindset; itpervades all organizational tiers, roles and functions.

KSL's effective risk management is guided by an understanding of the various parametersthat can have a bearing on its business and profitability:

External: These comprise risks that the Company faces but cannot control - industryslowdown, competition, regulatory changes, brand perception etc.

Internal: These comprise risks that the Company can directly control through prudentstrategy - costs, liquidity, technology, operations, people etc.

KSL controls client risk through a prudent categorization of clients as per theirfinancial depth. This helps circumscribe their trading limits, leading to effective riskmanagement. KSL monitors a client's trading pattern in addition to keeping a continuousvigil on positions, balances and margins. This provides an understanding of a client'strading pattern in terms of nature of transactions, trading, investments, F&O types ofscrips, etc. to detect any undesirable or prohibited practices. Based on this, remedialactions are initiated whenever required. This ensures strict regulatory compliance.

Industry Risk

KSL is primarily engaged in the business of financial services. Any slowdown in thecountry's economy or financial sector as well as any changes in interest rates, politicalclimate or regulatory changes could affect the Company's prospects. Further the capitalmarket is always exposed to the cyclical risk of upswing and downturns which in turndepend on the overall economical growth of the country.

Management Perception

KSL's presence in multiple product segments also serves as a natural hedge against adownturn in any particular sector. For instance, the Company's presence in the relativelyvolatile equity segment is balanced by its presence in the relatively stable insurance,mutual funds and fixed interest-bearing debt instruments. Your Company has broadly threemajor revenue generation department viz. Broking division, Corporate Advisory Division andCapital Market Operation. The total revenue generated by the company during the year showsthe overall performance of all the departments jointly and doesn't depend on any singlesegment of revenue.

Liquidity risk

In the event of clients not honoring their financial commitments following anunexpected market movement, the Company's cash flow could be significantly affected.

Management Perception

KSL has exercised prudence in client selection and credit extension. For instance, theCompany's internal audit team ascertains client credentials before they are permitted totrade.

Management Perception

As a corporate policy, it is endeavor to constantly monitor the margin payments andsettlements of our customers on a continuous basis. Our ability to understand thefinancial track record of each of our customers provides us with a judgment and directionon the margin calls to be issued as also calling for pre-payments if need be in cases ofexigencies. This approach we believe gives the Company the required flexibility inmanaging the liquidity risk across multiple categories and types of customer profiles.This assumes that at KSL we follow an independent and customer centric risk managementexercise thereby ensuring timely interventions to significantly reduce potential liquidityrisks.

Economic risk

A slowdown in economic growth in India could cause the business of the Company tosuffer. While the Indian economy has shown sustained growth over the last several years,the growth in industrial production has been variable. Any slowdown in the Indian economy,and in particular in the demand for housing and infrastructure, could adversely affect theCompany's business. Similarly, any sustained volatility in global commodity prices,including a significant increase in the prices of oil and petroleum products, could onceagain spark off a new inflationary cycle, thereby curtailing the purchasing power of theconsumers.

Management Perception

The Company manages these risks by maintaining a conservative financial profile andfollowing prudent business and risk management practices.

Human Resource Risk

Human Resource represents the company's principal assets in a knowledge led business,where any attrition or skill obsolescence could lead to a weaker industry position.

Management Perception

Your Company has consciously made the transition from a family based organization intoa professionally managed one, accompanied by delegation of responsibilities forintellectual growth. Over the years, your company has invested in the human resource byproviding timely training, various seminars on personal development etc. The free workenvironment provided by the Company has also resulted in to low attrition of manpower.

Client Risk

In the financial industry the company depends on a few bigger corporate andinstitutional clients from where majority of the revenue is generated.

Management Perception

Your Company enjoys strong long term relationship with its clients. However, as a goodRisk Management practice, the company has never relied upon particular client base andhence not exposed to such risk. During the year under review company has added 1 (One) newinstitutional clients from where regular business is generated. It is your company'sconstant endeavor to search for new area of business and clients.

Regulatory risk

The Company's presence in a variety of financial segments warrants an ongoingcompliance with the evolving requirements of their various regulators. Any violation ortransgression could invite censure, affecting the Company's brand.

Management Perception

KSL takes its compliance commitment seriously, recognizing that the businessmustnotonly serve the interest of the customer but also function well within theestablished guidelines of the various regulatory authorities for responsible andprofitable growth. At KSL, the compliance discipline extends across the entire transactioncycle: client identification, KYC process transaction execution, transaction settlementinvolving securities and funds transfer. The compliance requirements across the variousservice points have been communicated comprehensively to branch through compliancemanuals, leading to uniformity, quality, priority and discipline

Human Resources

Your company considers its human resource as the most valuable asset and, recognizingthis, devotes a considerable development of its employees in various traits, apart fromjob related skills:

o Employee satisfaction survey was carried out along with various seminars by the HRdepartment of the Company to understand the employees and help them to perform in the mostefficient manner. Feedbacks were received during such sessions and corrective actions havebeen initiated;

o Communication meeting is being organized once in a quarter to apprise all theemployees on the major development on various fronts such as market, deals stroked etc;

o Your company had recruited Management Trainees during the year and they were givenspecific job assignments in the research department. This has helped your company toestablish goodwill with local management schools and prepare future prospects foremployment.

Opportunities & Threats:

The retail business in India is expected to grow significantly. India's exceptionalgrowth story and its booming economy have made the Country a favorite destination forforeign institutional investors. It is continuing to attract foreign investments. Asustained fund inflow into the capital markets might improve the market sentiments overthe medium term resulting in increased participation by retail investors.

In the very recent past, India has witnessed a silent transformation from a largelyperceived unstable country to a very politically stable country. This transformation willnot only help a greater foreign participation in Indian business, but will also be themain driver of increased global investment in the country. The disinvestment proposal ofthe finance ministry shall bear a positive impact on the market and investors sentimentswith the launch of some big-ticket initial public offers, or IPOs, which could hit themarkets soon.

A significant portion of the Company's income is from stock market related activities,which is intricately related with external factors. Market conditions, in particular theperformance of the equity markets, contribute substantially to KSL's growth and willimpact on our ability to repeat or improve on the earnings. Even though India has not beenas badly affected, in macro-economic terms, as the rest of the world, corporate India toofelt the heat of the melt down.

We are hopeful that your Company will be able to tap the opportunities for all ourbusiness segments in the growing Indian economy.

Outlook:

In terms of outlook, FY 2011 seem to be a bit overweight in near term due to peakingcrude rates, monetary tightening as RBI could again hike policy rates in a bid to controlinflation.

However with the Indian Market trading at 14.5-15 times FY12 earnings, we maintain ourlong term positive view on the market. India being the second fastest economy, foreigninvestors are likely to be favorably inclined to invest in Indian markets. The growthprospects and the related capital requirements of Indian companies will continue to drivestrong growth in the Indian capital markets and the corporate sector, which is thebackbone of the capital market, is likely to perform better in FY 2011 as compared to FY2010.

Sustained improvement in the economy and capital markets augur well for all our keybusinesses. We are confident of capturing the resulting opportunities through ouroperating model that is well diversified across capital markets activities having uniquestrengths in each of our business segments and most importantly, the ability to withstanddifficult market cycles. We continue to invest across all our key operations to createopportunities in varied market conditions.

It is our intention to expand our portfolio of services, invest in people, enhance ourinfrastructure, create greater competence across our businesses and continuously upgradetechnology to emerge bigger and stronger every year. Our financial performance, will beinfluenced to some extent by market conditions which are not very positive at this givenpoint of time, but this in no way has diminished our appetite for progress and expansion.Therefore, it is always our endeavor to deliver operational growth while our financialresults may at times vary with market conditions. We believe that given the portfolio ofour services and the inherent strengths of our business model we will be relatively lessimpacted during market downturns, while we expect to do extremely well in favourablemarket conditions.

Investor Relations:

We consider investor relations to be an important aspect of our business as we believein building transparent and open relationships with our stakeholders. As a listed company,we are now laying even greater emphasis on our investor relations program to provide ourinvestors and other stakeholders with a complete and accurate picture of the company'spast and current performance and the prospects and strategies for the future. In thisregard, we have put in place the required infrastructure and personnel to incorporatebest-in-class IR practices which promote steady communication with investors andstakeholders so that we are acknowledged as a responsive and transparent organization.

Cautionary Statement:

Statements made in this Management Discussion and Analysis contain certain forwardlooking statements based on various assumptions on the Company's present and futurebusiness strategies and the environment in which it operates. Actual results may differsubstantially or materially from those expressed or implied due to risk and uncertainties.These risks and uncertainties include the effect of economic and political conditions inIndia and abroad, volatility in interest rates and in the securities market, newregulations and Government policies that may impact the businesses as well as the abilityto implement.

For and on behalf of the Board of Directors

Chairman

Date: 27th May, 2011

Place: Mumbai.

To,

The Members,

Khandwala Securities Limited

Ground Floor, Vikas Building,

Green Street, Fort,

Mumbai 400 021

Dear Sirs,

We hereby certify that, to the best of our knowledge and belief:

1. We have reviewed the balance sheet and profit and loss account and all its schedulesand notes to accounts, as well as cash flow statements and the Directors Report.

2. These statements do not contain any material untrue statement or omission of factnor do they contain statements that might be misleading;

3. These statements together present a true and fair view of the Company, and are incompliance with the existing accounting standards and/ or applicable laws/ regulations.

4. The Management is responsible for establishing and maintaining internal controls andhave evaluated the effectiveness of internal control systems of the Company; deficienciesin the design or operation of internal controls, if any, and what they have done orpropose to do to rectify these;

5. The Management have also disclosed to the Auditors as well as the Audit Committee,that there are no instances of significant fraud, that involves management or employeeshaving a significant role in the Company's internal control systems; and

6. The Management has indicated to the Auditors, the Audit Committee and in the notesto accounts, whether or not there were significant changes in internal control and/ or ofaccounting policies during the year.

For and on behalf of the Board of Directors

Chairman

Date: 27th May, 2011

Place: Mumbai.